Sales 20,000 X$ 5 100% $ 100,000

T. variable costs $ 2 x20000 40% ( 40,000)

Contribution Margin 60% 60,000
T. Fixed Cost (10,000)
EBIT 50,000
Interest Cost (20,000)
Profit before Tax 30,000
Tax Rate 40% (12,000)
Profit After Tax 18,000
Pref Dividend (12,000)
Earnings to Common stocks 6,000
EPS = 6,000/5000 = $ 1.20
T. variable costs
Factory related variable cost item to item
Selling Expenses variable cost item to item
T. Fixed Cost Fixed Cost: Factory + Admin +
Selling + Financial
Break Even ($) Overall/total = T. Fixed Cost/ C/M
Ratio

10000+20000+12000/.60= 70,000/=

Check/proof

Sales at breakeven $ 70,000

T. variable Cost 40%0f sales (70,000) (28,000)

Contribution Margin 42,000

T. Fixed Cost (42,000)

Profit/Loss -0-

GOOD EBIT $ 55,000/ 55,000- I-5,000(PD-O)=

DFL = 55,000/50,000 = 1.1 > 1 Plan B
90,000/90000-7000 = 90000/83,000 –( 80,000 x
1/1-.4)or ( 80,000 x 1/.6) or (80000x 1.66) 0r
( 132800)= 90000/83,000 –132800 = 90000/ = -1.86
<1
55,000/30000 = 1.8 > 1
12-9 Levin Co.
Fixed Operating Cost $ 72,000, Variable Cost $ 6.75 pu Selling Price $ 9.75 pu

a. Break Even in Units/Q = T. Operating Fixed Cost/ Selling Price PU- Variable PU

$ 72,000/ ($ 9.75 – 6.75) {Contribution Margin Per Unit}

$ 72,000/ 3 = 24000 units

Check : Sales in units Break Even 24000 x $ 9.75 $ 234,000 100%

Less total Variable Cost 24000x $6.75 ($162000) 69% 162/234

Contribution Margin (# 3x 24,000) $ 72,000 31%

T. Operational Fixed Cost ($72,000)

Profit/ Loss NIL

Units sold 25,000 30,000 40,000 24,000 (d) Increase/

Decrease
$/ %
Unit Price $ 9.75
T. Sales $ 243,750 $ 292,500 $ 390,000 234,000 156,000
66%
T. Variable Cost $ 6.75 ($168750) ($202,500 ($270,000) ($162000)
)
Contribution Margin $ 75,000 $90,000 $ 120,000 72,000
T. Fixed Cost ($ 72,000) ($ 72,000) ($ 72,000) ($72,000)
EBIT $ 3,000 $ 18,000 $ 48,000 NIL 48,000
125% say
DOL = % change in EBIT/ % Change in Sales = 125/66 = 2.1 > 1

DOL = Sales 292,500 – 243,750 = 48750/243750 x100 = 20%

EBIT 18,000 -3,000 = $ 15,000/3000 x100 = 500%

DOL = % change in EBIT/ % Change in Sales = 500/20 = 25 > 1

12-10 South Company

EBIT $ 24,600 $ 30,600 $ 35,000

Interest Bond $ 60,000 x16% 9,600 9,600 9,600
Earnings Before Tax $ 15,000 $ 21,000 $ 25,400
Tax Rate .40 6,000 8,400 10,160
Profit After Tax 9,000 12,600 15,240
Pref. Dividend $ 5 x 1,500 7,500 7,500 7,500
Earning to common Stockholder 1,500 5,100 7,740
No. on common shares 4,000 4,000 4,000
EPS 5100/4000=1.275 7740/4000=1.945
1500/4000=0.37
5

I- 24600 – 30600 = - 6000/ 24600x100 = 24% ; EPS = 0.375 – 1.275 = - .90/.375x100 = 240%

240%/ 24 % = 10 times > 1

I- 24,600/ 24600- 9600- ( 7500 x 1/1-.4) = ( 7,500 x 1/.6)= 12,500;

24,600/24,600-9600-12,500 = 24,600/2500= 9.84 or 10 > 1

II. 30,600/30600- 9,600- (7,500x1/1-.4)

30,600/30,600-9,600-12,500= 30,600/7,900 = 3.87>1

III. 35,000/35,000 -9,600 -12,500 = 1.09 >1

14-1, 6, 10, 12
 For Assignment
Total Sales $ 10,000,000 100%
Total Variable cost 1620000 16%
CM 8380000 84%
T. Fixed Cost ($ 72,0000)
EBIT 7,660,000
Break Even $Total Sales = T. Fixed Cost/ CM Ratio=
$ 720,000/ .84 (CM Ratio) = $ 857,143

Check: Sales $ at break even 857,143

T. Variable Cost 16% of 857,143 ( 137,143)
Contribution Margin 720,000
Total Fixed Cost (720,000)
Profit/ loss NIL